As the UK moves towards a carbon net zero future by 2050, property owners will need to play their part by reducing the amount of greenhouse gases released from their homes.
As part of that process, you may have read or heard about green mortgages.
But what is a green mortgage, how do they work and who is eligible for one?
We’ve got all the answers here…
What is a green mortgage?
Green mortgages are on offer as an incentive for property owners to either purchase an energy efficient home or make improvements to their current property.
Green mortgages have been available for several years, but as the UK moves towards its climate change target in 2050, they’re becoming more well-known and certainly more popular.
How does a green mortgage work?
A green mortgage incentivises buyers, homeowners and landlords to either purchase an energy efficient home or upgrade their existing property to make it more energy efficient.
Green mortgages work in the same way as traditional mortgages, but are generally split into three categories:
- Mortgages that offer lower interest rates if you buy an energy efficient home
- Mortgages that offer cashback to buyers who purchase an energy efficient home
- Mortgages that offer cheaper borrowing rates or cash incentives to buyers who make energy efficient home improvements
Who qualifies for a green mortgage?
Firstly, to be eligible for a green mortgage, you would need to meet your lender’s borrowing criteria in the same way you would when applying for any mortgage.
But green mortgages also have other criteria buyers must meet, including:
- To qualify for lower interest rates on offer with a green mortgage, buyers will usually be required to purchase a home with an Energy Performance Certificate (EPC) rating of either A or B
- To qualify for lower additional borrowing rates or cashback incentives on home improvements, buyers will be required to spend a certain percentage of any money specifically on energy efficiency work
What are the benefits of an energy efficient mortgage?
Green mortgages come with a range of benefits both for buyers purchasing a new home and existing homeowners and landlords looking to make energy efficiency improvements…
1. Lower interest rates
Many lenders offer green mortgages with lower interest rates than many standard mortgage products.
This means borrowers will pay less for their homes in the long-term and their monthly repayments are likely to be lower.
2. Cashback
Other green mortgage products offer cashback incentives for buying an energy efficient home.
Most cashback deals require buyers to purchase properties with either an A or B Energy Performance Certificate (EPC) rating.
The amount of cashback usually ranges from £250 to £750, depending on the EPC rating.
3. Cheap borrowing rates for improvements
Many lenders are offering green additional borrowing products, where existing property owners can apply for loans to make energy efficient home improvements at reduced interest rates.
Some lenders also offer home improvement cashback incentives, but these are usually dependent on a property’s EPC rating increasing by a certain number of points within a certain timeframe.
4. Lower energy bills and reduced carbon footprint
As well as the benefits offered by the green mortgages themselves, buyers taking out a sustainable home loan should also benefit from lower energy bills.
This is either because they have purchased an extremely energy efficient home, or because they’re having work done to make their home greener.
Green mortgage holders will also be reducing their personal carbon footprint and doing their bit for the UK’s climate change pledge.
5. Increased property value
It’s estimated that energy efficient homes with either an A or B Energy Performance Certificate (EPC) rating are worth up to 6% more than those with a D rating.
So, by making energy efficiency improvements through a green mortgage, you could be adding significant value to your home.
Energy efficiency improvements you could make
By taking advantage of the cashback or low-rate additional borrowing opportunities on offer through green mortgages, there are a host of energy efficiency improvements you could make to your home…
1. Solar panels
It’s possible to save hundreds on your annual electricity bill by installing solar panels.
Meanwhile, solar energy can also provide power for sustainable heating systems like air source or ground source heat pumps.
2. Insulation
Loft insulation is another energy efficiency improvement that can reduce your heating bills and lower your carbon emissions.
Cavity wall insulation also makes a huge difference when it comes to keeping heat inside your home, lowering your bills further.
3. Low carbon heating
While ground source and air source heat pumps still require electricity to run, they replace carbon emitting gas boilers.
The government has already set out its vision for the removal of domestic boilers from new-build homes and as they become more widely used, the currently expensive ground and air source pumps should become more affordable.
